1. Chapter 4
Limited Partnership

2. An Introduction to Limited Partnerships
Limited partnership-a partnership formed by general partners and limited partners
General partners-run the business and have liability
Limited partners-partly or fully finance the business, take no part in running the business, and have no liability for partnership debt beyond the money they put in or promise to put in
Limited liability limited partnership-a type of limited partnership in which the general partners have less than full liability for the actions of other general partners.

3. Uniform Limited Partnership Act of 1916 (ULPA) –first uniform law concerning limited partnerships in the U.S.
Revised Uniform Limited Partnership Act of 1976
1985 amendments to the Act
O.C.G.A. Chapter
14-9

4. The limited partnership is treated as a separate entity with regards to real estate ownership and capacity to sue.
ULPA §104 (2001)
Exceptions: when dealing with substantive liabilities and duties of the partners
In these instances the partnership is considered an aggregate of the individual partners.

5. IRS treatment Required to file partnership income returns
not subject to federal income taxation as separate entities

6. Partners’ Rights and Responsibilities
General partner rights and responsibilities
*except as otherwise provided by statute or limited partnership agreement
Same as a partner in a general partnership (refer to Chapter 3 slides)

7. Limited partner rights and responsibilities
Limited liability
Risk is limited to amount of that partner’s investment in the LP
Creditors of the LP may not look to the personal assets of the limited partner when trying to collect on a debt owed by the LP
Limited partner holds no title to the assets of the partnership

8. No right to participate in management
RULPA §303(a) provides: a limited partner who participates in control of the business is liable only to persons who transact business with the limited partnership reasonably believing, based upon the limited partner’s conduct, that the limited partner is a general partner

9. Terms of art “taking part in control
Defined by case law of the jurisdiction
“safe harbor” activities –RULPA §303(b)
See also page 118

10. ULPA of 2001
Limited partners are not personally liable for obligations of the LP “even if the limited partner participates in the management and control of the LP”

11. Statutory rights of limited partners
Right to info regarding the partnership business
Inspect records/books
Agreement rights of limited partners
Right to vote on certain extraordinary matters affecting the LP

12. Relationship b/w general partners and limited partners
Owe fiduciary duty to limited partners
A person may be a general partner and a limited partner

13. Advantages of Doing Business as a LP
Limited liability for limited partners
See Commonwealth of Pennsylvania, Department of Revenue for the Bureau of Accounts Settlement v. McKelvey
Income tax benefits
Not taxed as separate entity
Subject to IRS limits regarding losses

14. Transferability of partnership interest
Limited partner’s interest is assignable
Assignment does not cause a dissolution of the LP
An assignment is the transfer of one’s rights under a contract.
The assignor is the one who assigns or transfers his/her right to receive payment to the assignee (the person to whom a transfer or assignment is made).

15. Business continuity
Limited partner’s death or incompetency does not dissolve the LP
Legal representative of the deceased or incompetent limited partner will exercise the partner’s rights
LP does not dissolve upon death or withdrawal of general partner
There is at least one other general partner

16. Diversified capital resources
The written provisions of the partnership agreement permit the business of the limited partnership to be carried on by the remaining general partner and
That partner does so
Diversified capital resources
LP has ability to raise cash by attracting passive investors
Can add new limited partners

17. Disadvantages of Doing Business as a LP
Unlimited liability
General partner has unlimited liability for debts and obligations of the LP.
Prohibition on control of business
In RULPA states, the limited partners must relinquish all control over partnership matters in order to maintain their status and enjoy limited liability.

18. Formalities and regulatory and reporting requirements
Created according to state statute
Secretary of state’s office
LP certification
Legal and organizational expenses
Preparation of partnership agreement and certificate
Filing fees for certificate of LP

19. Filing certificate of assumed name

20. Organization and Management of a LP
Management and Control
In RULPA states, the general partners of the LP have control of the LP business
LP certificate
Document filed with SOS to form the LP
See elements of LP certificate for states that have adopted the RULPA.

21. Amendment to LP certificate
Certain events necessitate the filing of an amendment to LP certificate
Records Required by Statute
See page 128 for records required
See page for information that is set forth in the documents

22. LPA See pages 129-136 for sample clauses used in the agreement.
The agreement goes into more detail than the LP certificate.
See Appendix F-2 for a LP agreement form.

23. Changes in the LP Changes in the LP can affect its continuance.
Admission of new general partners
RULPA states-general partners admitted with written consent of all partners or by the means set forth in the LPA

24. Admission of new limited partners
RULPA states-limited partners added pursuant to LPA. If not provided for in LPA, then written consent of all partners required.
Amendment of the LP certificate is not necessary.

25. Withdrawal of general partners
Generally, death or withdrawal of general partner causes the dissolution of the LP
Exception: There is another general partner and the LPA permits the continuance of the LP.

26. Withdrawal of limited partners
LP not dissolved upon the death or withdrawal of a limited.
Legal representative can handle the limited partner’s interest.

27. Financial Structure of a LP
Partnership capital contributions
RULPA states the contributions must be in the form of a promissory note or other obligation to contribute cash or property or perform services.
Limited partnership profits and losses
Profits and losses are derived from the contributions and efforts of the partners are shared among the partners

28. Limited partnership distributions
Distributions occur pursuant to LPA.
Under RULPA, distributions to partners are forbidden to the extent the fair value of the distributions are made, the partnership liabilities exceed the fair value of the partnership assets.

29. Income tax reporting
Form 1065
Schedule K-1

30. LP Dissolution, Winding Up, and Termination
Once an LP has been dissolved, the partnership does not terminate until the affairs of the LP have been wound up.
Causes of Dissolution
See page 140 for causes of dissolution under RULPA.

31. Cancellation of Certificate of LP
Filed with SOS
Cancellation cert must contain items listed on page 141.
Signed by all general partners
See Exhibit 4-6

32. Winding Up Handling those final activities to dissolve the LP
Completed by those general partners who have not wrongfully dissolved the LP, if none, then by the limited partners

33. Settlement and Distribution of Assets
State statutes provide the means for distributing the assets.
See page 141 for sample list of order of payment
Partners will not receive a distribution from the partnership unless the LP’s assets are sufficient to pay all creditors.

34. Derivative Actions
Derivative action-a type of lawsuit brought by a S/H to enforce a claim of the corporation.
Derivative actions are not permitted or accepted in all states.

35. Family LPs Family LP-an LP owned and operated by a family.
This type of LP is usually formed by individuals who are concerned about protecting their assets and transferring them to their children with the least amount of income and estate tax liability.

36. Assets held in a family LP can be protected from claims of creditors.
Creditors who have a judgment against a limited partner may seize cash or assets that have been distributed out of the partnership to the limited partner..
Creditors may not take family LP property to fulfill an obligation to them unless the partnership is dissolved.

37. To reduce estate taxes, a partner can gift shares in the LP equal to the annual gift tax exclusion to each child each year.

38. The Paralegal’s Role See tasks listed on page 144.
Corporate Paralegal Profile on page
Ethical Consideration on page

39. Resources State statutes IRS SOS Georgia Dept of Revenue
Partnership form books